‘I Am Preparing For This Possibility of Going Bankrupt and Belly Up’

Gabriel Stulman, the celebrated restaurateur behind West Village neighborhood hotspots like Joseph Leonard, says owners like him could face professional — and personal — financial ruin, as some landlords are showing no signs of rent leniency during the pandemic.

Stulman is known for cozy West Village restaurants that have an outsized style and taste, like 28-seat gastropub Bar Sardine and trendy all-day cafe Fairfax. Now, he’s starting to prepare for the possibility of bankruptcy due to stringent lease terms that haven’t been waived in light of the pandemic, even though all his restaurants were profitable before the shutdown.

This week, the restaurateur wrote a vulnerable, lengthy letter to NYC City Council Speaker Corey Johnson and state senator Brad Hoylman expressing support for a proposed bill that would stop landlords from holding commercial tenants personally liable in the event of a business closure due to economic impact from COVID-19.

The letter, reprinted below, explains in exacting detail what Stulman fears will happen to many restaurateurs in the city, including himself, if they are held personally liable for paying out leases on restaurants that are no longer functioning. While three out of Stulman’s six landlords have shown a willingness to work with him through the crisis, the other three — detailed in the letter — have indicated that they expect full rent payments regardless of the circumstances.

As it stands, Stulman’s lease agreements include a “Good Guy Clause” — typically included in commercial leases in the city — that protects Stulman from paying out entire lease terms if he closes down a restaurant before the lease is up, as long as certain conditions are met.

Those conditions are already quite steep: Stulman has to shell out any rent “in arrears,” or unpaid sums up until the day that a restaurant closes down, plus an additional three to six months of rent. If Stulman was forced to shut down a restaurant right now, he says in the letter, he may owe his landlords April and May’s rent, and up to six months rent on top of that.

The months of rent would be impossible to pay, Stulman writes, as his restaurants already owe hundreds of thousands of dollars in unpaid bills. And even as a city reopening draws nearer, it will likely come with heavy operating restrictions on restaurants similar to what has already happened in other cities like Atlanta and Dallas, wiping out any hopes for turning a profit.

If Stulman shuts down a restaurant without being able to fulfill the “Good Guy Clause,” his landlords are legally in a position to personally sue him for the entire amount left on the lease, which typically extend for 10, 12, or 15 years, the restaurateur tells Eater.

“This is leverage that landlords have over us right now,” Stulman says. “They have this card that they can hold and waive over us that is, ‘Hey, even if we fail, I can come get you.’ We need legislation to take that leverage away.”

Bill 1932-2020, currently being considered by NYC City Council, would bar landlords from holding commercial tenants economically impacted by COVID-19 personally liable for unpaid rent in the event of a permanent closure.

The bill was discussed in a virtual NYC City Council hearing on Wednesday, April 29, alongside many other issues, including a proposed food delivery fee cap for third-party delivery vendors. There has been no date set for a vote on the bill yet, a city council representative tells Eater.

Stulman says in the letter that he is preparing, “emotionally and financially,” for the possibility of shuttering his restaurants. He’s not received help at any of his restaurants despite applications to multiple programs, including the federal small business loan.

“If this bill does not pass,” Stulman writes, “I am at risk of not only losing my restaurants and my income, but beyond that, I am at risk of losing the entirety of my life savings and any and all assets I have until I am personally bankrupt.”

See Gabriel Stulman’s letter to local legislators, reprinted in full below:

City Council Speaker Johnson (and Senator Hoylman):

My name is Gabriel Stulman and I am both a resident and small business owner in the West Village of Manhattan. I own five small restaurants in the neighborhood that range from 11 years old to seven years old — they include Joseph Leonard (32 seats), Jeffrey’s Grocery (45 seats), Fedora (40 seats), Fairfax (40 seats) and Bar Sardine (28 seats). Additionally, I own three other restaurants — one in Noho and two in Flatiron. Collectively, I used to employ nearly 270 people.

On Sunday, March 15th — as the severity of the crisis began to set in — I laid off approximately 265 of my colleagues, many of whom have worked with me since we opened our first business in 2009. Because we don’t have the kinds of jobs one can do from home, and without financial resources to pay people for even a week without becoming insolvent, we laid off directors, managers, chefs, office workers and all of our hourly employees. This part of my story is not unique, but please keep reading, I have some important points to make that I hope you’ll consider at this critical moment.

Prior to the mandated closures on March 16, all of my restaurants were profitable and operating in the black.

Today, if all unpaid rent, sales tax, utilities, insurance, vendor bills, etc., are all due in full then each of my restaurants is in the RED between from -$90,000 to -$160,000, depending on location and expenses.

We have applied for every loan and grant that we’ve deemed worthwhile: NYC Business Continuity Fund, Federal EIDL Loans, James Beard Foundation Grants, and the Federal PPP Loans. In most cases, we’ve had to submit eight independent applications — one for each individual LLC. To date, we have not been approved for a single application.

Without aid (whether private or government funded) — specifically in the form of GRANTS — we will likely close multiple businesses. I believe my current circumstances are shared by the majority of small restaurant owners in New York City.

Emotionally and financially, I am preparing for this possibility of going bankrupt and belly up. Not being able to pay vendors, utility companies, taxes, etc. should be enough — however, that is not where this story ends. I am concerned that my landlords, in addition to them keeping my security deposits (most of them three months and in excess of $60,000), are entitled to — and likely will — sue me personally for my obligations under my various leases.

The Bill 1932-2020 that you have proposed is instrumental to my existence and that of most small businesses in this city. I am currently living in fear and anxiety of my personal exposure to my landlords, most of whom are demonstrably unsympathetic to my standing during this crisis, and extremely unlikely to release me from any potential liability. If this legislation is not made into law, I do not have enough assets or savings to cover the personal liability and guarantees of all of my commercial leases. If this bill does not pass, I am at risk of not only losing my restaurants and my income, but beyond that, I am at risk of losing the entirety of my life savings and any and all assets I have until I am personally bankrupt.

I understand and accept the terms of the Good Guy Clause under normal circumstances. I accept the responsibility that if my business is failing, that I need to provide adequate notice to my landlord before exiting the lease. The “Notice Period” for most of my leases ranges from three to six months. Under my current obligations, I must cover all arrears in rent (April and May) plus an additional three to six months of rent after I give notice. Failure to pay all of that rent in addition to sacrificing my security deposits, leaves me personally liable. That’s a bullish set of circumstances to be forced to agree to under normal circumstances — but we all agree anyway, because that is the rules of the game of commercial leases.

These are NOT normal circumstances. To hold me — and others like me — accountable to these clauses when the reason for our failures and closures can be precisely attributed to the COVID-19 pandemic and subsequent government mandated closures is fatal.

I have done everything in my power to mitigate these circumstances directly with my landlords. Despite the siren blaring in the background, most of my landlords remain unmoved and my attorneys have advised me in stark terms about my risks. I appeal to you as a last resort before me, and the many other well meaning business people, residents, and families like mine, that are at risk of being decimated.

Here are summaries of communications with three separate landlords of mine — do not reach out or communicate with any of them, please. I am sharing this with you not for you to talk with them, but to let you know that this is what is actually happening and it is not hypothetical concerns:

Restaurant “A”: Yesterday, we sent a proactive email to our landlord to tell them that in addition to the fact that we were unable to pay April Rent and due to the continuation of the current state of affairs, that we are also unable to pay May Rent. We explained to them our situation in detail as well as all actions we are taking to resolve. The response we received was: “You are already in default. We do not consent to the withholding of rent, the rent remains due and owing, the lease remains in full force and effect, no terms of the lease or any rights of the landlord are waived and all such rights are expressly reserved by the landlord.”

Restaurant “B”: In addition to the restaurant space that I rent on the ground floor, I have also rented the one bedroom apartment directly above it for the last nine years. One week ago, the landlord reached out to me to explain that the term of my lease at the apartment is set to expire on May 31, 2020. If I am interested in staying, they will “allow it” with an increase of $75 per month! To me, reaching out in this time to a tenant of nine years to tell them that their rent is increasing in the midst of all of this is so insensitive and tone deaf that it is foreshadowing the actions and unwavering position that I expect them to take in regards to the commercial lease rent arrears and future months.

Restaurant “C”: Two days ago, in a completely impersonal manner, their accounting department sent an invoice for May Rent showing the amount due in full. Also, they showed that they drew down against my security deposit to cover the rent arrears for April Rent. I know this Landlord well enough to know that they will certainly expect me to replenish the security deposit in full and potentially more. The lease is written in a manner that if the security deposit is ever needed to be drawn down (which has now occurred) that the landlord can then require me to replenish the deposit and increase the number of months of security deposit. This landlord has a reputation that you may very well be aware of. Without legislation on my side, I have every expectation that they will require me to replenish the security deposit beyond 100 percent.

This is a sample of the beginning of what we stand to face.

Furthermore, if we can make it through this period and get re-opened, I expect (and I accept as a caring citizen) there to be regulations and limitations on the number of seats we are allowed to have in our restaurants. Whether that reduction be percentage-based or based on number of feet between tables doesn’t matter. What does matter, is that for the foreseeable future, we will have fewer seats than we once did.

Additionally, it is certain that for many, legitimate safe behavior in the face of COVID-19 will change how, when, and the degree to which people dine out, likely for long after restrictions ease. This all but guarantees that revenue in the restaurants will be down anywhere from 30 percent to 80 percent. I accept that it is my responsibility as a business owner to figure out how to adjust and pivot to this new normal. I accept that responsibility. However, there is no way I (or any of my independent restaurant peers) can sustain our original rents if we don’t have full restaurants.

Even if by some stroke of luck, we manage to re-open our businesses without rent relief, GRANT assistance, or tax rebates, there is no way we’ll be able to stay open under the pressures of pre-COVID rents, minimum wages, insurance costs, etc. In the event that we are approved for any of the PPP Loans we applied for (still crossing our fingers), the 25 percent that can be used for non-payroll expenses in most cases won’t even be sufficient to cover the arrears owed in rent, so there definitely won’t be any aid in future months rent, utilities, etc. All of this to say that adversity will be the norm for small business like ours and the fight will continue long after this round.

Your bill, at the least, can give me and all of my peers the comfort that if we fail and cannot reopen, or if we reopen and can’t sustain our businesses, at least the failure of our business will be punishment enough — we won’t also lose our personal livelihoods, our life-savings and the protection we’ve afforded our families.

If we don’t receive any loans or grants — I can still figure out how to reopen.

If we don’t receive any rent discounts in future months, I can still give it a go at reopening and hope for the best.

But, if I am still personally liable for a failed business to my landlord — that I can’t justify and I can’t give a go.

All of the leverage has always been and is still in our landlords’ hands. It needs to shift right now.

While we wait for government action to address so many of our fears, I have chosen to activate what remains of my teams to take action in areas that I can control. We have spearheaded three initiatives since going out of business: 1) Taking Care of Our Team; 2) Taking Care of First Responders; 3) Taking Care of Our Community. If you care to learn about any of our actions in these areas, summaries are below.

TAKING CARE of OUR TEAM: We have raised nearly $70,000 in private donations to establish a FREE FOOD BANK GROCERY STORE for all of our former employees. Each week we leverage our wholesale distributors and our ability to purchase in bulk and on terms to buy enough fruits, vegetables, meat, fish, dairy, grains and starch to create 40 pound bags of free groceries to every member of our staff. We use the volunteer support of our out-of-work colleagues to receive, prep, portion, and distribute these groceries once a week. Each staff member receives enough groceries to last them an entire week until they return for another pick up. Each week we distribute approximately 150 bags with enough food to feed nearly 300 people for a full week and we have done this already for four weeks and we are actively working on our fifth week of this initiative.

TAKING CARE of FIRST RESPONDERS: Three weeks ago we joined forces with the Paul Singer Foundation and the Jewish Food Society to supply Feed the Frontlines. We’re currently producing 300 meals a day, seven days a week out of our kitchen at Joseph Leonard. Over the last month, we have prepared well over 5,000 meals and delivered them to hospitals around the city including Woodhull in Brooklyn, Lenox Hill and Cornell Weil in Manhattan. This initiative has had the dual benefit of allowing us to re-employ eight people and provide around the clock support to our city’s first responders.

TAKING CARE of OUR COMMUNITY’S NEEDS: About one week ago, after dozens of neighbors continued to knock on our glass windows while we prepared and distributed groceries for our staff and meals for first responders, our neighbors asked us if we would consider selling groceries or meals to them. We heard their frustration about the challenges of grocery shopping in the city and we realized there was a valuable service we could provide. So we reopened our restaurant, Jeffrey’s Grocery, as an actual grocery store with the aim of creating a more personal, higher quality, grocery experience with warm hospitality and superior value. One week in, we’ve been rewarded with plenty of interest and enough sales to have incurred only a small operating loss (approximately - $1,500 in losses last week). We have been able to re-employ another ten individuals and we will continue to offer this service because our neighbors’ response has affirmed this is something the hood wants and needs and with a couple of tweaks, we believe we can at least break even.

If you’ve made it this far, thank you for taking the time to read my story. Thank you for your public service. Thank you for proposing this bill. I hope that this passes on every level sooner than later, because our landlords are coming after us, and time is of the essence.

If there is anything more I can do locally or beyond to support this bill please tell me — I am at your service.

Sincerely,

Gabriel Stulman

CEO/Founder

Happy Cooking Hospitality